Edited version of your private ruling

Authorisation Number: 1012539583338

Ruling

Subject: Wine Equalisation Tax (WET) - Classification of a grape wine product

Question 1

Is your Product One a 'grape wine product' for the purposes of the WET Act?

Answer

No, your Product One is not a 'grape wine product' for the purposes of the WET Act.

Question 2

Is your Product Two a 'grape wine product' for the purposes of the WET Act?

Answer

No, your Product Two is not a 'grape wine product' for the purposes of the WET Act.

Relevant facts and circumstances

· You are a winery which produces a fruit flavoured grape wine based beverage

· You are registered for WET

· You provide grape wine to Entity One who blends it with various flavours (i.e. lemon, orange, butterscotch and coconut) to produce the two products on your behalf.

· The lemon and orange flavours used to manufacture both products have an ethanol base.

· According to the Product Specification flavours comprise ethanol (cane/whey spirit) and natural flavours to produce the final flavour.

· The ethanol base is derived from x spirit and not y spirit

· The ethanol base is approximately 55 - 75% alcohol by volume (av)

· You have supplied the following recipes for 1000L of finished beverage:

Product 1

Product 2

· You provided the following points in support of both products being a grape wine product for the purposes of the WET Act:

1. more than % of grape wine is used for each product;

2. the total alcohol strength of the added flavouring to the final product is %;

3. the alcoholic flavour used will not exceed % point to the overall alcoholic strength by volume, satisfying sub-paragraph 31-3(b)(ii) of the WET Act for 'grape wine products'; and

4. final alcoholic strength for each product will be %

Relevant legislative provisions

A New Tax System (Wine Equalisation Tax) Act 1999 Subdivision 31-A

A New Tax System (Wine Equalisation Tax) Act 1999 Subsection 31-1(1)

A New Tax System (Wine Equalisation Tax) Act 1999 Subsection 31-1(2)

A New Tax System (Wine Equalisation Tax) Act 1999 Section 31-3

A New Tax System (Wine Equalisation Tax) Act 1999 Section 33-1

A New Tax System (Wine Equalisation Tax) Regulations 2000 Regulation 31-2.01

Excise Tariff Act 1921

Ruling and Determinations

Wine Equalisation Tax Ruling WETR 2009/1

Reasons for decision

Questions 1 & 2

Summary

Both Product 1 & 2 beverages do not meet the definition of a 'grape wine product' for the purposes of the WET Act.

Detailed reasoning

Wine equalisation tax (WET) applies to 'wine' as defined in section 33-1 of the WET Act.

Section 33-1 of the WET Act provides that 'wine' has the meaning given by Subdivision 31-A. Subsection 31-1(1) in Subdivision 31-A provides that 'wine' means any of the following (emphasis added):

(a) grape wine;

(b) grape wine products;

(c) fruit or vegetable wine;

(d) cider or perry;

(e) mead;

(f) sake.

However, subsection 31-1(2) of the WET Act provides that wine does not include beverages that do not contain more than 1.15% by volume of ethyl alcohol.

of the products set out in subsection 31-1 of the WET Act is separately defined in the WET Act.

Subsection 31-2(1) of the WET Act and regulation 31-2.01 of the WET Regulations provide that grape wine is a beverage that:

(a) is the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes; and

(b) does not contain more than 22% by volume of ethyl alcohol.

Subsection 31-2(2) of the WET Act goes on to provide that a beverage does not cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes merely because grape spirit, brandy or both grape spirit and brandy, have been added to it.

However, a beverage will cease to be the product of the complete or partial fermentation of fresh grapes or products derived solely from fresh grapes where it is subjected to a further process such as distillation, or in this case where water and other flavours have been added to the product.

Of relevance in this case, section 31-3 of the WET Act and Regulation 31-3.01 of the A New Tax System (Wine Equalisation Tax) Regulations 2000 (WET Regulations) provide that a 'grape wine product' is a beverage that meets all of the following requirements:

· contains at least 700 millilitres (ml) of grape wine per litre;

· has not had added to it, at any time, any ethyl alcohol from any other source, except:

1. grape spirit; or

2. alcohol used in preparing vegetable extracts (including spices, herbs and grass), where the alcohol:

(a) must only be used to extract flavours from vegetable matter; and

(b) must be essential to the extraction process; and

(c) must not add more than one percentage point to the strength of alcohol by volume of the beverage;

· contains at least 8% by volume of ethyl alcohol, but not more than 22% by volume of ethyl alcohol; and

· must not have added to it the flavour of any alcoholic beverage (other than wine), whether the flavour is natural or artificial.

Products One and Two:

You have advised that the combination of the following ingredients is required to produce 1000 litres of your Product One:

· water (%)

· sugar (%)

· First flavour ethanol based (%)

· Second flavour ethanol based (5%),

· Third flavour (%); and

· Grape wine (%).

You have advised that the combination of the following ingredients is required to produce 1000 litres of your Product Two:

· water (%)

· sugar (%)

· First flavour (0.13%)

· Second flavour ethanol based (0.06%)

· Third flavour (0.02%); and

· Grape wine (70.5%).

Section 31-3 of the WET Act provides that a beverage must contain at least 700ml of grape wine per litre (70%) before it will qualify as a grape wine product.

You have advised that your Product One and Product Two are both comprised of % grape wine. Therefore, on the facts provided, both products meet the first requirement to be classified as a grape wine product.

Section 31-3 of the WET Act and regulation 31-3.01 also require that that ethyl alcohol cannot be added unless it is derived from grape spirit or alcohol used in preparing vegetable extracts. You have advised that the flavours added to your products are ethanol based and that the ethanol is derived from xxx.

Your Product One and Product Two contains xxx based ethanol and, as such, it contains ethanol that is not 'grape spirit'.

Also, you have advised that the flavours are 'ethanol based flavour'. The product specification sheets do not contain any information about the process used to manufacture the flavours and simply specify the ingredients as including ethanol and natural flavours.

The Commissioner, at paragraph 15 of Wine Equalisation Tax Ruling WETR 2009/1, considers the phrase 'the alcohol must be essential to the extraction process' to mean alcohol that has become an intrinsic part of the extraction process. The Commissioner does not consider that it extends to alcohol that has been used as a carrying medium for flavours made from vegetable extracts.

In the absence of any indication to the contrary, we have assumed that the xxx ethanol 'base' has been used as a carrying medium for the natural flavours, as opposed to being used to extract flavour.

You made reference to paragraph 31-3(b)(ii) of the WET Regulations, stating that your ethanol based flavours will not add 'more than one percentage point' to the overall alcoholic strength of your Products. However, this is only relevant where the alcohol added to the beverage is essential to the extraction process in preparing vegetable extracts. As such, this is not a relevant consideration for the purposes of determining whether your products within the meaning of 'grape wine product'.

Your Product One and Product Two (produced in the manner described) will not meet the requirements of a grape wine product according to section 31-3 of the WET Act and regulation 31-3.01 of the WET Regulations. None of the other products set out under the meaning of 'wine' for the purposes of the WET Act apply to your products.

On the basis that Product One and Product Two are not subject to WET, consequently, they will be subject to excise duty (i.e. Spirits and Other Excisable Beverages) and will therefore require an excise licence for their manufacture.